EXHIBIT 10.4

                               SECURITY AGREEMENT

      THIS SECURITY AGREEMENT (as amended,  supplemented,  restated or otherwise
modified from time to time, the "SECURITY AGREEMENT"),  dated as of December 13,
2004, made by Neoprobe Corporation, a Delaware corporation ("GRANTOR"), in favor
of  Biomedical  Value  Fund,  L.P.  ("BVF"),  a  Delaware  limited  partnership,
Biomedical  Offshore Value Fund,  Ltd.  ("BOVF" and together with "BVF," the "BV
FUNDS"), an exempted company  incorporated under the provisions of the Companies
Law of the Cayman Islands, and DAVID C. BUPP ("BUPP" and together with BV Funds,
each a "LENDER" and collectively, the "LENDERS").

                              W I T N E S S E T H:

      WHEREAS, pursuant to a Securities Purchase Agreement, dated as of December
13, 2004 ("PURCHASE AGREEMENT") among Grantor and Lenders, Grantor has issued to
(i) BVF an 8% Series A Convertible  Promissory  Note,  due December 12, 2008, in
the  principal  amount  of  $4,400,000,  (ii)  BVOF an 8%  Series A  Convertible
Promissory  Note, due December 12, 2008, in the principal  amount of $3,600,000,
and (iii) Bupp an 8% Series A  Convertible  Promissory  Note,  due  December 12,
2008,  in the  principal  amount of  $100,000,  (collectively,  the "NOTES") and
agreed to secure Grantor's obligations thereunder.

      NOW,  THEREFORE,  for good and  valuable  consideration,  the  receipt and
sufficiency of which are hereby acknowledged, Grantor agrees as follows:

                                   ARTICLE I

                                   DEFINITIONS

      SECTION 1.1. Certain Terms. Capitalized terms not otherwise defined herein
shall have the  respective  meanings  defined  in the  Purchase  Agreement.  The
following terms when used in this Security Agreement, including its preamble and
recitals,  shall have the following  meanings  (such  definitions  to be equally
applicable to the singular and plural forms thereof):

      "ADMINISTRATIVE AGENT" is defined in Section 7.1.

      "BANKRUPTCY CASE" is defined in Section 7.6.

      "BANKRUPTCY CODE" is defined in Section 7.6.

      "BV FUNDS" is defined in the preamble.

      "COLLATERAL" is defined in Section 2.1.

      "COMPUTER HARDWARE AND SOFTWARE COLLATERAL" means:

            (a) all  computer and other  electronic  data  processing  hardware,
integrated  computer systems,  central processing units,  memory units,  display
terminals,  printers,  features,  computer elements,  card readers, tape drives,
hard and soft disk drives, cables, electrical supply hardware, generators, power
equalizers,  accessories,  all  peripheral  devices and other  related  computer
hardware now owned or hereafter acquired by the Grantor;


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            (b) all software  programs  (including both source code, object code
and all related  applications  and data files),  whether now owned,  licensed or
leased or hereafter  acquired by the Grantor,  designed for use on the computers
and electronic data processing hardware described in clause (a) above;

            (c)  all  firmware  associated  therewith  now  owned  or  hereafter
acquired by the Grantor;

            (d)  all  documentation  (including  flow  charts,  logic  diagrams,
manuals, guides and specifications) with respect to such hardware,  software and
firmware described in the preceding clauses (a) through (c) above; and

            (e) all rights of the Grantor with respect to all of the  foregoing,
including,  without  limitation,  any and  all  copyrights,  licenses,  options,
warranties,  service  contracts,  program  services,  test  rights,  maintenance
rights, support rights,  improvement rights, renewal rights and indemnifications
and any  substitutions,  replacements,  additions or model conversions of any of
the foregoing.

      "COPYRIGHT  COLLATERAL" means all copyrights and all  semi-conductor  chip
product mask works of the Grantor,  whether statutory or common law,  registered
or  unregistered,  now or hereafter  in force  throughout  the world  including,
without limitation, all of the Grantor's right, title and interest in and to all
copyrights and mask works  registered in the United States  Copyright  Office or
anywhere  else  in  the  world  and  also  including,  without  limitation,  the
copyrights and mask works referred to in Item A of Schedule III attached hereto,
and  all  applications  for   registration   thereof,   whether  pending  or  in
preparation,  all copyright and mask work licenses, including each copyright and
mask work license  referred to in Item B of Schedule III  attached  hereto,  the
right to sue for past,  present and future  infringements  of any  thereof,  all
rights  corresponding  thereto throughout the world, all extensions and renewals
of any thereof and all proceeds of the foregoing, including, without limitation,
licenses, royalties, income, payments, claims, damages and proceeds of suit.

      "EQUIPMENT" is defined in clause (a) of Section 2.1.

      "GRANTOR" is defined in the preamble.

      "INTELLECTUAL  PROPERTY  COLLATERAL"  means,  collectively,  the  Computer
Hardware  and  Software  Collateral,   the  Copyright  Collateral,   the  Patent
Collateral, the Trademark Collateral and the Trade Secrets Collateral.

      "INVENTORY" is defined in clause (b) of Section 2.1.

      "LENDER" is defined in the preamble.

      "LENDER REMEDIES" is defined in Section 7.6.

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      "LOAN DOCUMENTS" means the Purchase  Agreement and the Notes and all other
agreements,  instruments  and  documents  evidencing  or relating to the Secured
Obligations.

      "OTHER LENDERS" is defined in Section 7.1.

      "PATENT COLLATERAL" means:

            (a)  all  letters  patent  and   applications   for  letters  patent
throughout the world of the Grantor,  including all patent  applications  of the
Grantor in  preparation  for filing  anywhere  in the world and  including  each
patent  and  patent  application  referred  to in Item A of  Schedule I attached
hereto;

            (b) all patent  licenses  in favor of the  Grantor,  including  each
patent  license  in favor of the  Grantor  referred  to in Item B of  Schedule I
attached hereto;

            (c) all reissues, divisions,  continuations,  continuations-in-part,
extensions, renewals and reexaminations of any of the items described in clauses
(a) and (b) above; and

            (d) all  proceeds  of, and rights  associated  with,  the  foregoing
(including  license royalties and proceeds of infringement  suits), the right of
the Grantor to sue third parties for past,  present or future  infringements  of
any patent or patent  application,  including  any patent or patent  application
referred  to in  Item A of  Schedule  I  attached  hereto,  and  for  breach  or
enforcement of any patent license,  including any patent license  referred to in
Item B of  Schedule I attached  hereto,  and all  rights  corresponding  thereto
throughout the world.

      "POSSESSORY COLLATERAL" is defined in Section 7.10.

      "RECEIVABLES" is defined in clause (c) of Section 2.1.

      "RELATED CONTRACTS" is defined in clause (c) of Section 2.1.

      "SECURED OBLIGATIONS" is defined in Section 2.2.

      "SECURITY AGREEMENT" is defined in the preamble.

      "TRADEMARK COLLATERAL" means:

            (a) all trademarks,  trade names,  corporate  names,  company names,
business  names,   fictitious  business  names,  trade  styles,  service  marks,
certification   marks,   collective  marks,  logos,  other  source  of  business
identifiers,  prints and labels on which any of the  foregoing  have appeared or
appear,  designs and general intangibles of a like nature of the Grantor (all of
the foregoing items in this clause (a) being collectively called a "TRADEMARK"),
now  existing  anywhere in the world or hereafter  adopted or acquired,  whether
currently  in use or not,  all  registrations  and  recordings  thereof  and all
applications  in connection  therewith,  whether  pending or in preparation  for
filing, including  registrations,  recordings and applications of the Grantor in
the United States Patent and Trademark  Office or in any office or agency of the
United States of America or any state thereof or any foreign country,  including
those referred to in Item A of Schedule II attached hereto;

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            (b) all Trademark  licenses in favor of the Grantor,  including each
Trademark license referred to in Item B of Schedule II attached hereto;

            (c)  all  reissues,  extensions  or  renewals  of any  of the  items
described in clauses (a) and (b) above;

            (d) all of the  goodwill of the  business  of the Grantor  connected
with the use of, and  symbolized by the items  described in, clauses (a) and (b)
above; and

            (e) all  proceeds of, and rights  associated  with,  the  foregoing,
including any claim by the Grantor  against  third parties for past,  present or
future  infringement  or dilution of any Trademark,  Trademark  registration  or
Trademark   license  of  the  Grantor,   including  any   Trademark,   Trademark
registration or Trademark license referred to in Item A or Item B of Schedule II
attached  hereto,  or for any injury to the goodwill  associated with the use of
any such Trademark or for breach or enforcement of any Trademark license.

      "TRADE SECRETS  COLLATERAL"  means common law and statutory  trade secrets
and all other  confidential or proprietary or useful  information of the Grantor
and all know-how  obtained by the Grantor or used by the Grantor in the business
of the  Grantor  (all  of the  foregoing  being  collectively  called  a  "TRADE
SECRET"),  whether  or not such Trade  Secret  has been  reduced to a writing or
other tangible form, including all documents and things embodying, incorporating
or  referring  in any way to such  Trade  Secret,  all  Trade  Secret  licenses,
including each Trade Secret license  referred to in Schedule IV attached hereto,
and  including  the right of the Grantor to sue for and to enjoin and to collect
damages for the actual or  threatened  misappropriation  of any Trade Secret and
for the breach or enforcement of any such Trade Secret license.

      "U.C.C." means the Uniform  Commercial  Code, as in effect in the State of
New York.

      SECTION 1.2. U.C.C. Definitions. Unless otherwise defined herein or in the
Credit  Agreement  or unless the  context  otherwise  requires,  terms for which
meanings  are  provided  in the  U.C.C.  are  used in this  Security  Agreement,
including its preamble and recitals, with such meanings.

                                   ARTICLE II

                                SECURITY INTEREST

      SECTION 2.1. Grant of Security.  Grantor hereby assigns and pledges to the
Lenders  and hereby  grants to the  Lenders a security  interest  in, all of the
Grantor's  right,  title and interest in, to and under the  following  property,
whether now or hereafter  existing or acquired,  to the extent such  property is
primarily used in connection with Grantor's business of manufacturing, marketing
and selling  Grantor's  Quantix  devices,  neo2000  devices and any successor or
similar  devices  the  ("COLLATERAL").  The  Collateral  shall not  include  any
inventory,  equipment, accounts, goods, contract rights or intellectual property
relating  exclusively to Grantor's  Lymphoseek,  Activated Cellular Therapy,  or
RIGScan CR technologies:

<PAGE>

            (a) all  equipment  in all of its  forms  of the  Grantor,  wherever
located,  and all parts  thereof  and all  accessions,  additions,  attachments,
improvements,  substitutions and replacements  thereto and therefor (any and all
of the foregoing being the "EQUIPMENT");

            (b) all  inventory  in all of its  forms  of the  Grantor,  wherever
located, including

                  (i) all merchandise,  goods and other personal  property which
are held for sale or  lease,  all raw  materials  and work in  process  therefor
(including,  without limitation, tobacco and tobacco related products), finished
goods thereof,  and materials used or consumed in the  manufacture or production
thereof,

                  (ii) all goods in which the Grantor has an interest in mass or
a joint or other  interest  or right of any kind  (including  goods in which the
Grantor has an interest or right as consignee), and

                  (iii) all goods which are  returned to or  repossessed  by the
Grantor,

and all accessions thereto, products thereof and documents therefor (any and all
such inventory,  materials, goods, accessions,  products and documents being the
"INVENTORY");

            (c)  all  accounts,   contracts,  contract  rights,  chattel  paper,
documents,  instruments,  and  general  intangibles  of the  Grantor,  including
ownership  rights of the inventory owned by the Grantor,  whether or not arising
out of or in  connection  with the sale or  lease of goods or the  rendering  of
services,  and all rights of the Grantor now or hereafter existing in and to all
security  agreements,   guaranties,  leases  and  other  contracts  securing  or
otherwise  relating to any such accounts,  contracts,  contract rights,  chattel
paper,  documents,  instruments,  and  general  intangibles  (any  and all  such
accounts, contracts, contract rights, chattel paper, documents, instruments, and
general  intangibles  being  the  "RECEIVABLES",  and any and all such  security
agreements,   guaranties,   leases  and  other   contracts  being  the  "RELATED
CONTRACTS");

            (d) all Intellectual Property Collateral of the Grantor;

            (e) all books, records,  writings, data bases, information and other
property  of the  Grantor  relating  to,  used or  useful  in  connection  with,
evidencing,  embodying,  incorporating  or referring to any of the  foregoing in
this Section 2.1;

            (f) all of the Grantor's other property and rights of every kind and
description and interests therein; and

            (g) all products, offspring, rents, issues, profits, returns, income
and  proceeds  of and from any and all of the  foregoing  Collateral  (including
proceeds which  constitute  property of the types described in clauses (a), (b),
(c),  (d),  (e) and  (f)  above,  proceeds  deposited  from  time to time in any
collateral account and in any lock boxes of the Grantor,  and, to the extent not
otherwise  included,  all payments under insurance (whether or not the Lender is
the loss payee  thereof),  or any  indemnity,  warranty or guaranty,  payable by
reason of loss or damage to or otherwise  with  respect to any of the  foregoing
Collateral).

<PAGE>

      SECTION 2.2.  Security for Secured  Obligations.  This Security  Agreement
secures the prompt payment in full of all amounts  payable by the Grantors under
or in  connection  with  the  Notes  and  the  Purchase  Agreement  whether  for
principal, interest, costs, fees, expenses, indemnities or otherwise and whether
now  or  hereafter   existing  (all  of  such  obligations  being  the  "SECURED
OBLIGATIONS").

      SECTION  2.3.  Continuing  Security  Interest;  Transfer  of  Notes.  This
Security Agreement shall create a continuing security interest in the Collateral
and shall

            (a) remain in full force and effect until the  indefeasible  payment
in full in cash of all Secured Obligations, and

            (b) be binding upon each Grantor,  its  successors,  transferees and
assigns.

      SECTION 2.4.  Release and Termination.  Upon the  indefeasible  payment in
cash in full of all Secured  Obligations,  the security  interest granted herein
shall  terminate and all rights to the Collateral  shall revert to the Grantors.
Upon any such  termination,  the Lenders will,  at the  Grantors'  sole expense,
deliver to the Grantors, without any representations,  warranties or recourse of
any kind whatsoever,  such documents as the Grantors shall reasonably request to
evidence such termination.

      SECTION 2.5. Security Interest Absolute. All rights of the Lenders and the
security interests granted to the Lenders hereunder,  and all obligations of the
Grantor hereunder, shall be absolute and unconditional, irrespective of

            (a) any lack of validity or enforceability of the Notes;

            (b) the failure of any Lender or any holder of a Note;

                  (i) to assert any claim or demand or to  enforce  any right or
remedy against the Grantor, or

                  (ii) to exercise any right or remedy against any guarantor of,
or collateral securing, any Secured Obligation;

            (c) any change in the time, manner or place of payment of, or in any
other term of, all or any of the  Secured  Obligations  or any other  extension,
compromise or renewal of any Secured Obligation;

            (d) any  reduction,  limitation,  impairment or  termination  of any
Secured  Obligation  for any reason (other than repayment in full of the Secured
Obligations),  including any claim of waiver, release, surrender,  alteration or
compromise,  and shall not be subject  to (and each  Grantor  hereby  waives any
right to or  claim  of) any  defense  or  setoff,  counterclaim,  recoupment  or
termination whatsoever by reason of the invalidity, illegality,  nongenuineness,
irregularity,   compromise  or  unenforceability  of,  or  any  other  event  or
occurrence affecting, any Secured Obligation or otherwise;

            (e) any amendment to, rescission,  waiver, or other modification of,
or any consent to departure from, any of the terms of any Note;

<PAGE>

            (f)  any  addition,  exchange,  release,  surrender,  impairment  or
non-perfection of any collateral (including the Collateral), or any amendment to
or  waiver or  release  of or  addition  to or  consent  to  departure  from any
guaranty, for any of the Secured Obligations; or

            (g) any other  circumstances  which  might  otherwise  constitute  a
defense  available to, or a legal or equitable  discharge  of, the Grantor,  any
other person or otherwise.

                                  ARTICLE III

                         REPRESENTATIONS AND WARRANTIES

      SECTION  3.1.  Representations  and  Warranties.  Grantor  represents  and
warrants unto the Lenders as set forth in this Article.

            (a) Ownership,  No Liens,  etc. The Grantor owns the Collateral owed
by it free and  clear of any Lien,  security  interest,  charge  or  encumbrance
except  for the  security  interest  created  by  this  Security  Agreement  and
Permitted  Encumbrances.  No  effective  financing  statement  or other  similar
instrument  in effect  covering all or any part of the  Collateral is on file in
any recording office, except such as may have been filed in favor of the Lenders
relating to this Security Agreement and Permitted Encumbrances.

            (b) Possession and Control. The Grantor has exclusive possession and
control of the Equipment and Inventory.

            (c) Validity, etc. The Liens intended to be created by this Security
Agreement  constitute valid first priority security  interests in the Collateral
securing  the  payment of the  Secured  Obligations,  and all  filings and other
actions  necessary or desirable  to perfect and protect such  security  interest
have been duly taken.

            (d)  Authorization,  Approval,  etc. No  authorization,  approval or
other action by, and no notice to or filing with, any governmental  authority or
regulatory body (other than U.C.C. filings) is required either

                  (i) for the  grant by the  Grantor  of the  security  interest
granted hereby or for the execution,  delivery and  performance of this Security
Agreement by the Grantor, or

                  (ii) for the  perfection  of or the exercise by the Lenders of
their rights and remedies hereunder.

            (e)  Compliance  with  Laws.  The  Grantor is in  compliance  in all
material  respects with the  requirements  of all  applicable  laws  (including,
without  limitation,  the provisions of the Fair Labor  Standards  Act),  rules,
regulations and orders of every governmental authority.

            (f) Due  Execution,  Validity,  Etc.  The  execution,  delivery  and
performance  by the Grantor of this Security  Agreement  does not  contravene or
result in a default  under the  Grantor's  organic  documents or  contravene  or
result  in a  default  under  any  material  contractual  restriction,  lien  or
governmental  regulation or court decree or order  binding on the Grantor.  This
Security Agreement has been duly executed and delivered on behalf of the Grantor
and  constitutes  the  legal,  valid  and  binding  obligation  of  the  Grantor
enforceable  in  accordance  with  its  terms,  subject  to  the  effect  of any
applicable  bankruptcy,  insolvency,  reorganization,  moratorium or similar law
affecting  creditor's  right  generally,  and  subject  to the effect of general
principles of equity (regardless of whether considered in a proceeding in equity
or at law).

<PAGE>

                                   ARTICLE IV

                               FURTHER ASSURANCES

      SECTION 4.1.  Further  Assurances,  etc. Grantor agrees that, from time to
time at its own  expense,  the  Grantor  will  promptly  execute and deliver all
further  instruments  and documents,  and take all further  action,  that may be
necessary or  desirable,  or that the Lenders may request,  in order to perfect,
preserve  and protect any security  interest  granted or purported to be granted
hereby or to enable  the  Lenders  to  exercise  and  enforce  their  rights and
remedies  hereunder  with  respect  to  any  Collateral.  Without  limiting  the
generality of the foregoing, the Grantor will:

            (a) execute and file such financing or continuation  statements,  or
amendments thereto, and such other instruments or notices as may be necessary or
desirable,  or as the Lenders may request,  in order to perfect and preserve the
security  interests  and other rights  granted or purported to be granted to the
Lender hereby; and

            (b)  furnish  to the  Lenders,  from  time to  time at the  Lenders'
request,  statements  and  schedules  further  identifying  and  describing  the
Collateral  and such other  reports in  connection  with the  Collateral  as the
Lender may reasonably request, all in reasonable detail.

With respect to the foregoing and the grant of the security interest  hereunder,
the  Grantor  hereby  authorizes  the  Lender to file one or more  financing  or
continuation statements,  and amendments thereto, relative to all or any part of
the  Collateral  without the signature of the Grantor where  permitted by law. A
carbon,  photographic or other  reproduction  of this Security  Agreement or any
financing  statement  covering  the  Collateral  or any  part  thereof  shall be
sufficient as a financing statement where permitted by law.

                                   ARTICLE V

                                   THE LENDERS

      SECTION 5.1.  Administrative  Agent  Appointed  Attorney-in-Fact.  Grantor
hereby  irrevocably   appoints  the  Administrative   Agent,  as  the  Grantor's
attorney-in-fact,  with full authority in the place and stead of the Grantor and
in the name of the Grantor or otherwise, from time to time in the Administrative
Agent's  discretion,  to take any action and to execute any instrument which the
Administrative  Agent may deem necessary or advisable to accomplish the purposes
of this Security Agreement, including, without limitation:

            (a) to ask, demand, collect, sue for, recover,  compromise,  receive
and give  acquittance  and receipts for moneys due and to become due under or in
respect of any of the Collateral;

<PAGE>

            (b)  to   receive,   endorse,   and  collect  any  drafts  or  other
instruments, documents and chattel paper, in connection with clause (a) above;

            (c) to  file  any  claims  or  take  any  action  or  institute  any
proceedings which the  Administrative  Agent may deem necessary or desirable for
the  collection  of any of the  Collateral or otherwise to enforce the rights of
the Lenders with respect to any of the Collateral; and

            (d) to perform the affirmative obligations of the Grantor hereunder.

Grantor  hereby  acknowledges,  consents  and agrees  that the power of attorney
granted pursuant to this Section is irrevocable and coupled with an interest.

      SECTION 5.2. Perform.  If Grantor fails to perform any agreement contained
herein,  Administrative  Agent may itself perform, or cause performance of, such
agreement,  and the expenses of the Administrative  Agent incurred in connection
therewith shall be payable by the Grantor.

      SECTION 5.3. No Duty.  The powers  conferred on the  Administrative  Agent
hereunder  are solely to protect the  Lenders'  interest in the  Collateral  and
shall not  impose  any duty on the  Administrative  Agent to  exercise  any such
powers.  Except for reasonable  care of any Collateral in its possession and the
accounting for moneys  actually  received by it hereunder,  no Lender shall have
any duty as to any  Collateral  or as to the  taking of any  necessary  steps to
preserve  rights  against  prior  parties or any other rights  pertaining to any
Collateral.

      SECTION 5.4.  Reasonable  Care.  The  Administrative  Agent is required to
exercise  reasonable  care  in  the  custody  and  preservation  of  any  of the
Collateral in its possession;  provided,  however, that the Administrative Agent
shall  be  deemed  to  have  exercised   reasonable  care  in  the  custody  and
preservation of any of the Collateral,  if it takes such action for that purpose
as the  Grantor  reasonably  requests  in writing  at times  other than upon the
occurrence and during the  continuance  of any Event of Default,  but failure of
the  Administrative  Agent to comply with any such request at any time shall not
in itself be deemed a failure to exercise reasonable care.

                                   ARTICLE VI

                                    REMEDIES

      SECTION 6.1. Certain Remedies.  If any Event of Default (as defined in the
Notes) shall have occurred and be continuing:

            (a) The Administrative Agent, on behalf of the Lenders, may exercise
in respect of the Collateral,  in addition to other rights and remedies provided
for herein or  otherwise  available  to it, all the  rights  and  remedies  of a
secured party on default under the U.C.C.  (whether or not the U.C.C. applies to
the affected Collateral) and also may:

                  (i)  require  Grantor to, and  Grantor  hereby  agrees that it
will,  at its expense and upon request of the  Administrative  Agent  forthwith,
assemble all or part of the Collateral as directed by the  Administrative  Agent
and make it available to the Administrative Agent at a place to be designated by
the  Administrative  Agent which is reasonably  convenient to the Administrative
Agent and the Grantor; and

<PAGE>

                  (ii)  without  notice  except  as  specified  below,  sell the
Collateral or any part thereof in one or more parcels at public or private sale,
at any of the Administrative  Agent's offices or elsewhere,  for cash, on credit
or for future delivery  (without  assumption of any credit risk),  and upon such
other  terms  as the  Administrative  Agent  may deem  commercially  reasonable.
Grantor  agrees that,  to the extent notice of sale shall be required by law, at
least ten days' prior  notice to the Grantor of the time and place of any public
sale or the time after  which any  private  sale is to be made shall  constitute
reasonable notification. The Administrative Agent shall not be obligated to make
any sale of  Collateral  regardless  of notice of sale having  been  given.  The
Administrative Agent may adjourn any public or private sale from time to time by
announcement  at the time and place fixed therefor,  and such sale may,  without
further notice, be made at the time and place to which it was so adjourned.

            (b) All  cash  proceeds  received  by the  Administrative  Agent  in
respect of any sale of,  collection  from, or other  realization upon all or any
part of the Collateral  may, in the discretion of the  Administrative  Agent, be
held by the  Administrative  Agent as collateral for, and/or then or at any time
thereafter applied (after payment of any amounts payable to the Lenders pursuant
to Section 6.2) in whole or in part by the Administrative  Agent for the ratable
benefit of the Lenders  against,  all or any part of the Secured  Obligations in
the following order:

                  (i) first,  to payment of the  expenses  of such sale or other
realization  including  reasonable  compensation to the Administrative Agent and
its counsel, and all expenses,  liabilities and advances incurred or made by the
Administrative Agent in connection therewith or Section 6.2 hereof;

                  (ii)  second,  to the  ratable  payment of accrued  but unpaid
interest on the Notes;

                  (iii) third, to the ratable payment of unpaid principal of the
Notes;

                  (iv)  fourth,  to the  ratable  payment  of all other  Secured
Obligations, until all Secured Obligations shall have been paid in full.

The Administrative Agent may make distributions hereunder in cash or in kind or,
on a ratable basis, in any combination thereof. Any surplus of such cash or cash
proceeds held by the Administrative Agent and remaining after payment in full of
all the Secured  Obligations  shall be paid over to the Grantor or to whomsoever
may be lawfully entitled to receive such surplus.

      SECTION 6.2. Indemnity and Expenses.

            (a) The Grantor  agrees to  indemnify  the  Lenders,  including  the
Administrative  Agent, and the Indemnified  Parties from and against any and all
claims,  losses and  liabilities  arising out of or resulting from this Security
Agreement   (including,   without  limitation,   enforcement  of  this  Security
Agreement)  in  accordance  with the  provisions  of  Article 7 of the  Purchase
Agreement.

<PAGE>

            (b) The Grantor will upon demand pay to the Administrative Agent the
amount of any and all reasonable  expenses,  including the  reasonable  fees and
disbursements  of counsel  and of any  experts,  which the  Lenders may incur in
connection with

                  (i) the administration of this Security Agreement,

                  (ii) the custody,  preservation,  use or operation  of, or the
sale of, collection from, or other realization upon, any of the Collateral,

                  (iii) the exercise or  enforcement of any of the rights of the
Lenders hereunder, or

                  (iv) the  failure by the  Grantor to perform or observe any of
the provisions hereof.

                                  ARTICLE VII

                           INTERCREDITOR ARRANGEMENTS

      SECTION 7.1.  Administrative Agent. BVF as the "ADMINISTRATIVE  AGENT" and
the other Lenders (the "OTHER  LENDERS") agree, (i) as to the certain rights and
priorities of each with respect to the Secured  Obligations  and with respect to
their respective liens upon and security  interest in the Collateral and (ii) as
to provide for the  orderly  sharing  among the Lenders of the  proceeds of such
Collateral upon any foreclosure  thereon or other  disposition  thereof,  to the
intercreditor arrangements set forth in this Article 7.

      SECTION 7.2. Payments Held in Trust/Turnover; Application of Payments.

            (a) All payments of principal, interest, fees and expenses after the
issuance of the Notes,  and  proceeds  of the  Collateral  shall be  apportioned
ratably among the Lenders.

            (b) In the  event  that any  payment  or  distribution  of assets of
Grantor, whether in cash, property or securities,  shall be received by a Lender
in contravention of Section 7.2(a) such payment or distribution shall be held in
trust for the  benefit  of and shall be paid over to or  delivered  to the other
Lenders for application in accordance with the terms of Section 7.2(a).

      SECTION  7.3.  Permitted  Liens  and  Relative  Priorities.  As among  the
Lenders,   and   notwithstanding   the  terms   (including  the  description  of
Collateral),  dating,  execution,  or delivery of any document,  instrument,  or
agreement;  the  time,  order,  method,  or manner of  granting,  attachment  or
perfection of any security  interest or lien; the time of filing or recording of
any financing statements,  assignments,  deeds of trust, mortgages, or any other
documents,  instruments,  or agreements under the U.C.C. or any other applicable
law,  and  any  provision  of the  U.C.C.  or any  other  applicable  law to the
contrary, the Lenders agree that the Administrative Agent not individually,  but
on behalf of all of the Lenders,  shall have a first priority  security interest
in and lien upon the Collateral.

      For purposes of the  foregoing  allocation of  priorities,  any claim of a
right to a setoff shall be treated in all respects as a security interest and no
claimed  right of setoff  shall be asserted to defeat or diminish  the rights or
priorities provided for herein.

<PAGE>

      SECTION 7.4. No  Alteration  of Priority.  The lien and security  interest
priorities  provided  in Section  7.3 hereof  shall not be altered or  otherwise
affected  by  any  amendment,  modification,   supplement,  extension,  renewal,
restatement or refinancing of any of the Secured  Obligations  nor by any action
or  inaction  which  any  Lender  may  take or fail  to take in  respect  of the
Collateral.  Each Lender consents to Grantor's granting to each other Lender the
liens and security interests reflected in Section 7.3 hereof.

      SECTION  7.5.  Nonavoidability  and  Perfection.  The  provisions  of this
Article 7 are intended  solely to govern the respective  priorities as among the
Lenders.  Each Lender  agrees that it will not directly or  indirectly  take any
action to contest or challenge the  validity,  legality,  perfection,  priority,
availability,  or  enforceability  of the  liens of the other  Lenders  upon the
Collateral or seek to have the same avoided, disallowed, set aside, or otherwise
invalidated in any judicial proceeding or otherwise. In the event that any Other
Lender (either  individually  or together with others)  breaches or causes to be
breached the terms of the preceding sentence, resulting (directly or indirectly)
in the avoidance or imperfection of the Administrative  Agent's lien or security
interest held on behalf of all of the Lenders in some or all of the  Collateral,
then the  priority of the lien or  security  interest of the Lenders in any such
affected  Collateral  shall  continue to be governed by the terms of Section 7.3
hereof  irrespective  of the  avoidance or  imperfection  of the  Administrative
Agent's lien or security interest held on behalf of all of the Lenders.

      SECTION 7.6.  Management of  Collateral.  Notwithstanding  anything to the
contrary  contained in the Purchase  Agreement or any of the Notes (with respect
to provisions addressing management of Collateral only):

            (a) Until the Secured Obligations have been paid in full and subject
to the remaining provisions of this Article 7: (i) the Administrative  Agent, on
behalf of the Lenders,  shall have the exclusive right to manage,  perform,  and
enforce the terms of the Loan  Documents  with respect to the  Collateral and to
exercise and enforce all  privileges  and rights  thereunder  in its  reasonable
discretion  and  its  exercise  of its  business  judgment,  including,  without
limitation,  the  exclusive  right to enforce or settle  insurance  claims  with
respect to Collateral, take or retake control or possession of Collateral and to
hold,  prepare  for  sale,  process,  sell,  lease,  dispose  of,  or  liquidate
Collateral; provided, however, that nothing in this Article 7 shall be construed
as granting  Administrative  Agent any rights under this  Agreement or the Notes
which  do  not  specifically  relate  to  management  of the  Collateral  (e.g.,
declaring an "Event of Default", or amending or waiving any term or provision of
the Notes or this  Agreement);  (ii) none of the Other Lenders shall exercise or
take any action in furtherance of the sale,  foreclosure,  realization  upon, or
the  repossession  or liquidation of any of the Collateral,  including,  without
limitation:  (A) the exercise of any remedies or rights of a "Secured  Creditor"
under Article 9 of the U.C.C., such as, without limitation,  the notification of
account  debtors;  (B) the  exercise of any remedies or rights as a mortgagee or
beneficiary (or by the trustee on behalf of the beneficiary), including, without
limitation,   the  appointment  of  a  receiver,  or  the  commencement  of  any
foreclosure proceedings or the exercise of any power of sale, including, without
limitation, the placing of any advertisement for the sale of any Collateral; (C)
the exercise of any remedies available to a judgment creditor;  or (D) any other
remedy available in respect of the Collateral available to such Secured Creditor
under  any of the  Loan  Documents  (the  "LENDER  REMEDIES")  with  respect  to
Collateral;  and (iii) any and all proceeds of Collateral  which shall come into
the  possession,  control,  or custody of any Lender will be deemed to have been
received for the account of the  Administrative  Agent, and shall be immediately
paid over to the  Administrative  Agent for  application in accordance  with the
provisions  hereof.  Each Other  Lender  waives any and all rights to affect the
method or  challenge  the  appropriateness  of any action by the  Administrative
Agent with respect to the Collateral other than actions arising out of the gross
negligence or willful  misconduct of the  Administrative  Agent,  and waives any
claims or defenses they may have against the Administrative Agent, including any
such claims or defenses based on any actions or omissions of the  Administrative
Agent in connection with the perfection, maintenance,  enforcement, foreclosure,
sale,  liquidation or release of any lien or security interest  therein,  or any
modification  or waiver of the Loan Document other than those arising out of the
gross negligence or willful misconduct of the Administrative Agent.

<PAGE>

            (b) The  rights  and  priorities  set forth in this  Article 7 shall
remain binding  irrespective of the terms of any plan of  reorganization  in any
proceeding  commenced by or against  Grantor  under any  provision of the United
States  Bankruptcy  Code (11 U.S.C.  ss.  101,  et seq.),  as  amended,  and any
successor  statute (the  "BANKRUPTCY  CODE") or under any other federal or state
bankruptcy  or  insolvency  law,  including   assignments  for  the  benefit  of
creditors, formal or informal moratoria, compositions, extensions generally with
its creditors,  or proceedings  seeking  reorganization,  arrangement,  or other
similar  relief,  and all converted or succeeding  cases in respect thereof (the
"BANKRUPTCY  CASE") or other  provisions of the  Bankruptcy  Code or any similar
federal or state statute.

      SECTION 7.7. Sale of Collateral.  Until the Secured  Obligations have been
paid in full and subject to the consent of the BV Funds in  accordance  with the
remaining  provisions of this Section 7.7: (a) only the Administrative  Agent on
behalf of the Lenders shall have the right to restrict or permit,  or approve or
disapprove,  the sale, transfer or other disposition of the Collateral;  and (b)
the Other  Lenders  will,  immediately  upon the  request of the  Administrative
Agent,  release or otherwise  terminate their liens and security  interests upon
the Collateral,  to the extent such Collateral is sold or otherwise  disposed of
by Grantor with the consent of the  Administrative  Agent, and the Other Lenders
will immediately deliver such release documents as the Administrative  Agent may
require in connection therewith,  provided,  that the proceeds of any given sale
shall be applied to the Secured  Obligations  of each Lender ratably and no such
sale,  transfer or other disposition shall be consented to by the Administrative
Agent with respect to all or a substantial  part of the  Collateral  without the
consent of the BV Funds.

      SECTION 7.8.  Sections  9-504 and 9-505 Notice and Waiver of  Marshalling.
Each Lender hereby  acknowledges  that this Security  Agreement shall constitute
notice of the other Lenders' respective  interests in the Collateral as provided
by Sections 9-504 and 9-505 (provided that if the Administrative  Agent seeks to
exercise any rights under Section 9-505, it shall provide the other Lenders with
the notices  required  thereunder) of the U.C.C.  and each of the Lenders waives
any right to compel the other  Lenders to marshal  any of the  Collateral  or to
seek payment from any particular assets of Grantor or from any third party.

      SECTION 7.9. Bankruptcy Issues.

            (a) Except as provided in this  Section  7.9,  this  Article 7 shall
continue in full force and effect after the  commencement  of a Bankruptcy  Case
and shall  apply  with full  force and effect  with  respect  to all  Collateral
acquired  by  Grantor,  and to all  Lenders'  Secured  Obligations  incurred  by
Grantor,  subsequent to such  commencement to the extent  consented to by the BV
Funds.

<PAGE>

            (b) If Grantor shall become subject to a Bankruptcy Case, and if the
Administrative  Agent shall  desire to permit the use of cash  collateral  or to
provide  post-petition  financing  to Grantor,  the  Administrative  Agent shall
obtain the prior written consent of the BV Funds for such use of cash collateral
or post-petition  financing. No objection will be raised by the Other Lenders to
the  Administrative  Agent's  motion for relief from the  automatic  stay in any
proceeding under the Bankruptcy Code to foreclose on and sell the Collateral.

            (c) In any Bankruptcy Case by or against Grantor,

                  (i) the  Administrative  Agent may, and is hereby  irrevocably
authorized  and  empowered  (in its own  name or in the name of the  Lenders  or
otherwise),  but shall have no obligation,  to, (1) demand, sue for, collect and
receive every payment or distribution in respect of the Secured  Obligations and
give acquittance  therefor and (2) file claims and proofs of claim in respect of
all of the Secured  Obligations and take such other action  (including,  without
limitation,  voting all of the Secured  Obligations  or  enforcing  any security
interest or other lien securing  payment of all of the Secured  Obligations)  as
the  Administrative  Agent may  reasonably  deem  necessary or advisable for the
exercise or enforcement of any of the rights or interests of the  Administrative
Agent and the Lenders; and

                  (ii) the Other Lenders will duly and promptly take such action
as the  Administrative  Agent may reasonably  request (1) to collect the Secured
Obligations  and to file  appropriate  claims or proofs  of claim  with  respect
thereto,  (2) to execute and deliver to the Administrative  Agent such powers of
attorney,  assignments  or other  instruments  as the  Administrative  Agent may
request in order to enable it to enforce any and all claims with respect to, and
any  security  interests  and other  liens  securing  payment  of,  the  Secured
Obligations,   and  (3)  to  collect  and  receive  any  and  all   payments  or
distributions  which may be payable or  deliverable  upon or with respect to the
Secured  Obligations  for  application  to the Lenders in  accordance  with this
Security Agreement.

      SECTION 7.10. Bailment. With respect to any Collateral in which a security
interest  may be  perfected  under  the  U.C.C.  or other  relevant  law only by
possession  ("POSSESSORY  COLLATERAL"),  the  Administrative  Agent  will act as
pledgeholder  for the  Lenders  until the payment in full in cash of the Secured
Obligations.   Each  Other  Lender   acknowledges   and  agrees  that:  (i)  the
Administrative  Agent makes no representation  or warranty  whatsoever as to the
nature, extent,  description,  validity or priority of any Possessory Collateral
or the security interests in or liens upon any Possessory Collateral; (ii) while
any   Possessory   Collateral  is  held  by  the   Administrative   Agent,   the
Administrative Agent shall not have any liability to, and shall be held harmless
by, the Other Lenders, for any losses,  damages, claim, or liability of any kind
to the extent arising out of the holding of such  Possessory  Collateral,  other
than losses,  damages,  claims, or liabilities arising out of the Administrative
Agent's gross negligence or willful misconduct;  (iii) the Administrative  Agent
need  not act as a  pledgeholder  for the  Other  Lenders  with  respect  to any
Collateral  in which a security  interest  may be  perfected by means other than
possession;   (iv)  the  Other   Lenders  shall   immediately   deliver  to  the
Administrative  Agent any  Possessory  Collateral  that is now or in the  future
comes into their possession to be held by the  Administrative  Agent pursuant to
the terms hereof; and (v) the priority of the Lenders' security interests in and
liens upon the  Possessory  Collateral  shall be  governed  by the terms of this
Security Agreement.

<PAGE>

      SECTION 7.11.  Authority of  Agents/Trustees.  Each of the Lenders  agrees
that any assignment or transfer of an interest in any of the Secured Obligations
held by it shall be made  expressly  subject to the terms and conditions of this
Security Agreement.

      SECTION  7.12.  Additional  Covenants.  So  long  as any  of  the  Secured
Obligations  shall remain  outstanding,  none of the Lenders  will,  without the
prior  written  consent of the BV Funds:  (a) (i) except as otherwise  expressly
permitted in this Security Agreement,  cancel or otherwise discharge any Secured
Obligations  (except upon payment in full thereof as  contemplated  hereby),  or
(ii) subordinate any Secured Obligations to any indebtedness of Grantor;

            (b) sell,  assign,  pledge,  encumber  or  otherwise  dispose of any
Secured  Obligations  unless  such  sale,  assignment,  pledge,  encumbrance  or
disposition is made expressly  subject to this Article 7, provided that (i) such
Lender  provides  the other  Lenders  with not less than 10 days  prior  written
notice of any such sale, assignment,  pledge, encumbrance or disposition and the
identity and address and other notice  information of the  purchaser,  assignee,
pledgee,  transferee or other  beneficiary,  and (ii) such purchaser,  assignee,
pledgee,  transferee  or other  beneficiary  executes  and delivers to the other
Lenders an agreement in form and  substance  reasonably  satisfactory  to the BV
Funds agreeing to be bound by this Security Agreement and Article 7 hereof.

            (c) commence, or join with any creditor other than the other Lenders
in commencing, any Bankruptcy Case.

      SECTION 7.13. Successor Administrative Agent. The Administrative Agent may
resign and be discharged  from all further duties and  obligations  hereunder by
giving each of the Lenders  30-days prior written  notice or such shorter notice
period as may be agreed between the  Administrative  Agent and the BV Funds.  In
addition,  the Administrative  Agent may be removed at any time by the BV Funds.
Upon the  resignation  or  removal  of the  Administrative  Agent,  a  successor
Administrative Agent shall be elected by the BV Funds.

                                  ARTICLE VIII

                            MISCELLANEOUS PROVISIONS

      SECTION  8.1.  Purchase  Agreement.  This  Security  Agreement is executed
pursuant  to the  Purchase  Agreement  and  shall  (unless  otherwise  expressly
indicated herein) be construed,  administered and applied in accordance with the
terms and provisions thereof.

      SECTION 8.2. Amendments; etc. Any amendment, supplement or modification of
or to any provision of this Note,  any waiver of any provision of this Note, and
any consent to any  departure  by any party from the terms of any  provision  of
this  Note,  may be made only in the  manner  provided  in  Section  11.4 of the
Purchase  Agreement,  and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.

<PAGE>

      SECTION 8.3. Addresses for Notices.  All notices and other  communications
provided for hereunder shall be in writing (including telecopier  communication)
and, if to the Grantor,  mailed,  telecopied or delivered to it, addressed to it
at the address as set forth in the Purchase Agreement, if to any Lender, mailed,
telecopied  or delivered to it,  addressed to it at the address of the Lender as
specified in the Purchase Agreement, or as to any party at such other address as
shall be  designated  by such  party in a  written  notice to each  other  party
complying as to delivery with the terms of this Section.  Any notice,  if mailed
and properly  addressed and sent return receipt  requested with postage prepaid,
shall be deemed given three business days after posting;  any notice, if sent by
prepaid  overnight  express shall be deemed  delivered on the next business day;
any notice, if transmitted by telecopier,  shall be deemed given when sent, with
confirmation of receipt; and any notice, if transmitted by hand, shall be deemed
received when delivered.

      SECTION 8.4.  Obligations of the Lenders.  The  obligations of each Lender
shall be several and not joint and no Lender shall be liable or responsible  for
the acts or omissions of any other Lender.

      SECTION 8.5.  Section  Captions.  Section  captions  used in this Security
Agreement  are for  convenience  of  reference  only,  and shall not  affect the
construction of this Security Agreement.

      SECTION  8.6.  Severability.  Wherever  possible  each  provision  of this
Security  Agreement  shall be  interpreted in such manner as to be effective and
valid under  applicable  law, but if any  provision of this  Security  Agreement
shall be  prohibited  by or invalid  under  such law,  such  provision  shall be
ineffective  to  the  extent  of  such   prohibition   or  invalidity,   without
invalidating the remainder of such provision or the remaining provisions of this
Security Agreement.

      SECTION 8.7. Governing Law, Entire Agreement, etc. THIS SECURITY AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN  ACCORDANCE  WITH THE INTERNAL LAWS OF THE
STATE OF NEW YORK,  EXCEPT TO THE EXTENT THAT THE VALIDITY OR  PERFECTION OF THE
SECURITY  INTERESTS  HEREUNDER,   OR  REMEDIES  HEREUNDER,  IN  RESPECT  OF  ANY
PARTICULAR  COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE
STATE OF NEW YORK.  THIS  SECURITY  AGREEMENT,  THE PURCHASE  AGREEMENT  AND THE
DOCUMENTS  DELIVERED PURSUANT THERETO CONSTITUTE THE ENTIRE  UNDERSTANDING AMONG
THE PARTIES  HERETO WITH RESPECT TO THE SUBJECT  MATTER HEREOF AND SUPERSEDE ANY
PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO.

<PAGE>

      SECTION 8.8. Forum Selection and Consent to  Jurisdiction.  ANY LITIGATION
BASED HEREON,  OR ARISING OUT OF, UNDER,  OR IN CONNECTION  WITH,  THIS SECURITY
AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL
OR  WRITTEN)  OR  ACTIONS  OF ANY  LENDER  OR THE  GRANTOR  MAY BE  BROUGHT  AND
MAINTAINED IN ANY UNITED STATES  FEDERAL OR NEW YORK STATE COURTS SITTING IN THE
CITY OF NEW YORK; PROVIDED,  HOWEVER,  THAT ANY SUIT SEEKING ENFORCEMENT AGAINST
ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT,  AT THE ADMINISTRATIVE  AGENT'S
OPTION,  IN THE  COURTS  OF ANY  JURISDICTION  WHERE  SUCH  COLLATERAL  OR OTHER
PROPERTY MAY BE FOUND. THE GRANTOR HEREBY  EXPRESSLY AND IRREVOCABLY  SUBMITS TO
THE  JURISDICTION  OF ANY UNITED STATES FEDERAL OR NEW YORK STATE COURTS SITTING
IN THE CITY OF NEW YORK FOR THE  PURPOSE  OF ANY SUCH  LITIGATION  AS SET  FORTH
ABOVE AND  IRREVOCABLY  AGREES TO BE BOUND BY ANY JUDGMENT  RENDERED  THEREBY IN
CONNECTION WITH SUCH  LITIGATION.  THE GRANTOR FURTHER  IRREVOCABLY  CONSENTS TO
SERVICE OF PROCESS BY REGISTERED MAIL,  POSTAGE PREPAID,  OR BY PERSONAL SERVICE
WITHIN OR  WITHOUT  THE STATE OF NEW YORK.  THE  GRANTOR  HEREBY  EXPRESSLY  AND
IRREVOCABLY  WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH  LITIGATION
BROUGHT  IN ANY  SUCH  COURT  REFERRED  TO  ABOVE  AND ANY  CLAIM  THAT ANY SUCH
LITIGATION  HAS BEEN BROUGHT IN AN  INCONVENIENT  FORUM.  TO THE EXTENT THAT THE
GRANTOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT
OR FROM ANY LEGAL PROCESS (WHETHER  THROUGH SERVICE OR NOTICE,  ATTACHMENT PRIOR
TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF
OR ITS PROPERTY,  THE GRANTOR HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT
OF ITS OBLIGATIONS UNDER THIS SECURITY AGREEMENT.

      SECTION  8.9.  Waiver of Jury Trial.  THE  LENDERS AND THE GRANTOR  HEREBY
KNOWINGLY,  VOLUNTARILY  AND  INTENTIONALLY  WAIVE ANY RIGHTS THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY  LITIGATION  BASED  HEREON,  OR ARISING  OUT OF,
UNDER, OR IN CONNECTION WITH, THIS SECURITY AGREEMENT, OR ANY COURSE OF CONDUCT,
COURSE OF  DEALING,  STATEMENTS  (WHETHER  ORAL OR  WRITTEN)  OR  ACTIONS OF THE
LENDERS OR THE GRANTOR. THE GRANTOR ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED
FULL AND SUFFICIENT  CONSIDERATION  FOR THIS PROVISION (AND EACH OTHER PROVISION
OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A
MATERIAL  INDUCEMENT  FOR THE LENDERS  ENTERING INTO THE PURCHASE  AGREEMENT AND
EACH SUCH OTHER LOAN  DOCUMENT.  IN NO EVENT  SHALL ANY LENDER BE LIABLE FOR ANY
CONSEQUENTIAL  DAMAGES  WHICH  MAY BE  ALLEGED  IN  CONNECTION  HEREWITH  OR THE
TRANSACTIONS CONTEMPLATED HEREBY.


<PAGE>


      IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement
to be executed and delivered by as of the date first above written.


                                        NEOPROBE CORPORATION

                                  By:  /s/ Brent L. Larson
                                       -----------------------------------------
                                       Name:  Brent L. Larson
                                       Title: VP Finance / CFO

                                  BIOMEDICAL VALUE FUND, L.P.

                                  By:  GREAT POINT GP, LLC,
                                       its general partner


                                       By: /s/ David E. Kroin
                                          --------------------------------------
                                           Name:  David E. Kroin
                                           Title: Managing Director

                                  BIOMEDICAL OFF SHORE VALUE
                                  FUND, LTD.

                                  By:  GREAT POINT PARTNERS, LLC,
                                       its investment manager


                                       By: /s/ David E. Kroin
                                           -------------------------------------
                                           Name:  David E. Kroin
                                           Title: Managing Director


                                       /s/ David C. Bupp
                                       -----------------------------------------
                                       DAVID C. BUPP


                     [SIGNATURE PAGE TO SECURITY AGREEMENT]